FTC calls TurboTax ‘deceptive’ and bans a key part of its advertising

For years, TurboTax has been shouting “free, free, free!” in its commercials to advertise its “free edition” tax services, but when customers would try to take advantage of the offer on the company’s website, they found that they were not qualified.

After facing complaints from consumers, the Federal Trade Commission began cracking down on TurboTax’s free campaign in 2022, and has now issued an opinion on the company’s “deceptive advertising” and enforced a final order banning TurboTax, which is owned by Intuit, from advertising its services as “free” unless it’s really free for customers.

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“Intuit restricts eligibility for the free version of TurboTax to taxpayers who have ‘simple tax returns,’ as defined by Intuit,” said the FTC in its opinion. “Intuit’s definition of ‘simple tax returns’ has varied during the relevant time period.”

The FTC also claimed in its opinion that most taxpayers do not have “simple tax returns” and therefore do not qualify to use the “free edition” of TurboTax’s service, only about one-third of customers are eligible.

“Currently, consumers not eligible for TurboTax Free Edition include those with mortgage and property deductions, charitable donations over $300, itemized deductions, unemployment income, investment income, rental property income, education expenses (excluding student loan interest), and refinancing deductions,” said the FTC in its opinion. “Also not eligible are taxpayers who receive income reported through certain types of IRS Forms 1099, including taxpayers who receive independent contractor or small business income.”

The FTC also highlights that customers are allowed to prepare their taxes using TurboTax’s “free edition” even if they do not qualify, and once they enter “disqualifying information,” ineligible customers are informed that they need to upgrade to a paid version in order to continue using TurboTax.

Currently on TurboTax’s website, it claims that you can “start for free” when doing your taxes, and “pay only when you file.” The price range to do your taxes on its website by yourself has a range of $0 to $89. It also claims on its website that 37% of filers qualify for its “free edition.”

“Intuit and its ad agency understood and intended that the advertising for its free products would act as a powerful lure to consumers,” said the FTC in its opinion.

Intuit has appealed the FTC’s recent decision.

The FTC first hammered down on TurboTax in March 2022 when it filed a lawsuit against Intuit for TurboTax’s “free” filing campaign. The commission then sought an emergency order that would ban TurboTax from claiming its services were free, but it was denied in federal court in April 2022.

By May of that same year, a group of state attorney generals reached a settlement with TurboTax that resulted in the company paying a total of $141 million in order to reimburse 4.4 million consumers nationwide “who were tricked into paying to file their federal tax return.”

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